SAIC's new chief has big plans

Dahlberg seeks to expand company

Below:

Next story in Washington Post

Science Applications International Corp., the quiet giant of the government technology industry for decades, is getting a makeover that could make it even bigger and lot less quiet.

New chief executive Kenneth C. Dahlberg took over for retired founder J. Robert Beyster in November, and he intends to expand the company at a hothouse rate, doubling revenue to $12 billion in the next five years.

To achieve his goal, Dahlberg is tinkering with a model that has served SAIC well but one that critics and executives say the company outgrew long ago: a vast decentralized aggregation of business units, each staffed by aggressive consultants who were just as willing to go up against each other for a contract as go against Raytheon Co. or Northrop Grumman Corp.

The problem? The company spent precious resources developing multiple bids, leading to internal squabbles and annoying officials at understaffed government agencies.

"I spent a lot of my time refereeing those battles," said Duane P. Andrews, the newly appointed chief of SAIC's federal business in McLean.

Under a reorganization that began this week, Dahlberg combined all SAIC's federal business, both civilian and military, under Andrews. He's now responsible for more than 80 percent of the company's revenue. The employee-owned company is based in San Diego, but it has a vast federal division in McLean. About 14,000 of its 43,000 employees are in the Washington area.

Under one umbrella
Engineers and analysts working for the intelligence agencies, once scattered across four sectors, now are under one umbrella. Software developers working on projects for the Federal Bureau of Intelligence, once separated in two units, now collaborate. About 300 people will be laid off in the reorganization.

The hope is that SAIC will be better able to go after the biggest contracts, multibillion-dollar jobs that stretch out over years and require deep specialties in areas like surveillance technology, data mining and network engineering.

Dahlberg is the first outsider to lead the company after a 34-year reign by Beyster, and his internal moves make SAIC look and function more like its rivals in the defense industry. That may not be surprising; Dahlberg, an former Raytheon executive, left his post overseeing the information technology unit at General Dynamics Corp. to run SAIC.

The reorganization follows similar changes by Lockheed Martin Corp. and Raytheon last year designed to capitalize on the booming business building networks to help military and intelligence agencies share information more quickly.

SAIC, with Boeing, already holds one of the most valuable contracts awarded in the fast-growing "network-centric warfare" category: a $1.9 billion share of a $15 billion effort to develop the next generation of combat vehicles for the Army. SAIC's job is to build the communication systems for devices such as unmanned aerial vehicles, remote-controlled sensors that epitomize the military's planned metamorphosis into an organization that relies more on computing power than manpower.

Strong ambition, spotty performance
But the company has also stumbled. In 2002, for example, the company lost a $20 billion contract to overhaul the communications systems on the Coast Guard's aging fleet of ships and aircraft to a Lockheed Martin/Northrop Grumman team.

"It's a company with strong ambitions but sort of spotty performance in achieving those ambitions," said Philip Finnegan, a defense industry analyst for the Teal Group Corp.

Even if SAIC does pursue bigger, more complex contracts, Finnegan said, the company is unlikely to become a $12 billion company anytime soon without major acquisitions. SAIC's revenue, which was $5.9 billion for the 12 months ended Jan. 31, 2003, has grown 3 percent annually or less since 2001.

SAIC has participated in the explosion of mergers and acquisitions among government technology contracts in the past two years, but it has only bought relatively small, complementary companies. Meanwhile, SAIC's rivals in the defense industry have been on expensive shopping sprees. One example: In June, while Dahlberg was still overseeing General Dynamics' information technology operations, General Dynamics bought Veridian Corp., a local defense technology company, for $1.5 billion.

Dahlberg has outlined a strategy of self-propelled growth combined with acquisitions, he but hasn't offered more specifics publicly. "There is no formula" for acquisitions, said Ben Haddad, a SAIC spokesman.